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India: A Great Mutiny Against Economic Reform?

May 19, 1996

International Business: INDIA

INDIA: A GREAT MUTINY AGAINST ECONOMIC REFORM?

Nationalists vow to cull foreign investments

It's a rowdy election eve in Bombay's sprawling Shivaji Park, and an audience of more than 20,000 is drinking in the thunder and theatricals of a rally by the Bharatiya Janata Party (BJP) and its allies. Thrilling the crowd is Bal Thackeray, charismatic chief of Shiv Sena, the party that rules the pivotal Maharashtra state with the BJP. He roars into the microphone: "What has the Congress Party given you in the last 50 years? Corruption. But we will change that. We have to clean the system that's been sullied for 50 years."

Thanks partly to that powerful message, the BJP emerged from India's national election in early May in a position of unprecedented strength, despite its reputation among many Indians as a rabble-rousing band of nationalist Hindus. The strong showing means the BJP will enjoy newfound power, whatever weak government is able to take shape. "The BJP has changed the agenda," says S.L. Rao, the highly regarded former director general of the National Center for Applied Economic Research.

CULTURAL AFFRONT. Foreigners focus less on the BJP's religious chauvinism and more on its fuzzy and often troubling proposals for the economy. Although the party numbers many prominent businessmen among its core supporters and draws much of its support from upper- and middle-class Hindus, a strong streak of protectionism runs through the BJP. That's because many Indian businesses don't welcome the foreign competition that has come in the wake of reforms.

BJP leaders, for their part, see Coke, Pepsi, and Western fast food as an affront to Indian values and vow not to let more consumer-goods companies into the country. Party spokeswoman Sushma Swaraj says the party even wants to review all investment contracts signed by foreign auto companies ranging from General Motors and Ford to Mercedes-Benz and South Korea's Hyundai, with an eye toward renegotiating some of them. More roads should be a priority before more cars, she says.

It's still not clear which of the party's economic proposals will become policy, but with a stronger BJP, "matters are going to be worse," predicts University of Rochester India expert S.P. Kothari. "The growth in foreign investment will slow down." India received $2 billion in direct investment last year, up from about $100 million when Prime Minister P.V. Narasimha Rao took power five years ago.

The BJP insists it welcomes funds from abroad in high tech and in infrastructure. But the Shiv Sena-BJP coalition in Maharashtra forced Enron Corp. to renegotiate a contract for a $2.5 billion electricity plant after it came to power last year, denting foreign confidence. The BJP is keen to have foreigners build highways and ports to relieve congestion, but no political party has spelled out attractive conditions. "They've got to understand that investors aren't going to flood in," says a Western diplomat in New Delhi. "It has got to be commercially viable."

"NOT OVERLY CONCERNED." Whatever role the BJP plays, foreign companies in India say they aren't going to be put off by bumps on the political road. "We are committed to India," says a spokesman for Procter & Gamble Co., which introduced Pampers diapers and Pantene shampoo to the Indian market in 1995. Coca-Cola President M. Douglas Ivester, whose company and its bottlers have invested nearly $120 million in India since 1993, recently told shareholders that the company is "not overly concerned" about the antiforeign sentiment because reforms have gone too far to turn back.

Business is betting that the BJP will turn pragmatic if it has a real crack at power. They point to BJP-run states such as Gujarat, where the local government has wooed foreign businesses such as GM, which is building an assembly plant for its Opel Astra model there. GM India Managing Director Ron Nardi praises the BJP government for paving 45 miles of road to the plant and expediting the installation of a new telephone system. "They helped where we needed help," he says. As provocative as the party's rhetoric is, it's not clear that the BJP has any real alternative to some form of liberalization. Even in the best scenario, though, it's going to be a rough road ahead.By Manjeet Kripalani in Bombay, with Nicole Harris in Atlanta and Zachary Schiller in ClevelandReturn to top